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OBENCHAIN CORP. v. CORPORATION NACIONALE DE INVERS

March 18, 1987

Obenchain Corporation, Plaintiff
v.
Corporation Nacionale de Inversiones, a/k/a Conadi, Fundiciones-Centroamericanas S.A., Republic of Honduras, Angel Eduardo Ramos, Roberto Ramon Castillo, Augusto C. Coello, Carlos A. Mendoza, Juan C. Marinakys, Norman Garcia, Hector Cordova, Roberto Galvez Barnes, and Justo Pastor Calderon, Defendants



The opinion of the court was delivered by: WEBER

 In this age of multinational corporations, with investment opportunities in every corner of the globe, plaintiff picked Honduras. Plaintiff sorrowfully rues that decision and turns its frustrated energies to litigation in an effort to recoup at least some of its losses.

 Defendants on the other hand are understandably reluctant to air their failed business ventures in a United States Federal Court. Like a Honduran "Dorothy" they wanted the wizard to send them home. By motion to dismiss, defendants have challenged both personal and subject matter jurisdiction in this forum.

 A detailed history of the parties' relationship and experiences is not necessary at this time, but a review of the salient facts is in order.

 In 1974, the Republic of Honduras by statute created the Corporacion Nacionale de Inversiones, better known by the acronym, CONADI. The purpose of CONADI was to promote economic development in Honduras, and while CONADI claims to be a separate corporate entity, the Honduran Republic has retained at least general supervisory control.

 In 1976, plaintiff, a Pennsylvania corporation, or its Panamanian subsidiary, came to Honduras in search of a way to improve its corporate profit and loss statement. To this end, plaintiff (or its subsidiary) negotiated an agreement with CONADI to design, construct and operate an iron and steel foundry in San Pedro Sula, Honduras. The principals agreed to create a separate Honduran corporation, Funduciones-Centroamericanas, S.A., to serve as the operating company. In the course of the project, some or all of the parties renegotiated certain aspects of the agreement and it is these several contracts which form the basis of plaintiff's claim.

 We will not now go into the disagreeable details of the project's demise. Though there appears to be much dispute about the course of events, all parties agree that the experience was not a happy one. Suffice it to say that the fledgling Honduran steel industry died an inglorious and premature death.

 In this action, plaintiff alleges that CONADI and Fundiciones breached the contracts in several respects. Plaintiff also contends that CONADI guaranteed the obligations of Fundiciones, and Honduras in turn guaranteed the obligations of CONADI. The various individual defendants are identified as directors or officers of CONADI, or Fundiciones or both, and plaintiff alleges that they fraudulently misrepresented material facts concerning the project and its financing.

 DISCUSSION

 I. Service of Process.

 First the technical argument. Defendants contend that plaintiff failed to make service of process in compliance with the strictures of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. Section 1608 provides specific and detailed procedures for service. Plaintiff admits that it failed to comply with the Act in two respects. Plaintiff served the complaint rather than having the Clerk of Courts perform that function as required by the Act, and plaintiff did not include the required notice of suit.

 Defendants argue that the FSIA requirements are strict and failure to follow them, even if only a technical violation, deprives the court of jurisdiction. Several courts have agreed. Gray v. Permanent Mission of the People's Republic of the Congo to the United Nations, 443 F. Supp. 816 (S.D. N.Y.), aff'd 580 F.2d 1044 (2nd Cir. 1978); Magnus Electronics, Inc. v. Royal Bank of Canada, 620 F. Supp. 387 (N.D.Ill. 1985); Unidyne Corp. v. Aerolineas Argentinas, 590 F. Supp. 398 (S.D.Va. 1984).

 However, the better rule permits the assertion of personal jurisdiction where substantial compliance has effected actual notice. Velidor v. L/P/G Benghazi, 653 F.2d 812 (3d Cir. 1981); Harris Corp. v. National Iranian Radio & Television, 691 F.2d 1344, 1352, n.16 (11th Cir. 1982); Banco Metropolitano v. Desarrollo de Autopistas, 616 F. Supp. 301, 304 (S.D. N.Y. 1985). The purpose of the Act's requirements is to ensure actual notice to foreign states of the fact and substance of pending litigation. Where a party has received such notice, despite technical omissions in the manner of service, the purpose of the Act if not its letter has been satisfied. Velidor, 653 F.2d at 821.

 We are also cognizant of the fact that any flaws in service may be corrected, but we will not require the plaintiff, his counsel and the Clerk of Court to go through an empty ritual to serve parties who have received actual notice. While we do not condone the omissions of plaintiff's counsel, nothing of substance will be accomplished by ordering a meaningless act.

 Unfortunately for plaintiff, not all parties have been served. The docket reflects no proof of service on Fundiciones, and no one has entered an appearance for that entity. Therefore, unless plaintiff now establishes service in the manner required by the FSIA, Fundiciones will be dismissed.

 II. Sovereign Immunity

 Defendants seek to wrap themselves in the once magical cloak of sovereign immunity. However, as a reflection of an interdependent world economy and the expanding role of governments, the Foreign Sovereign Immunities Act has broadly defined areas of accountability for modern sovereigns.

 We may begin with the premise embodied in the FSIA that foreign states, their agencies and instrumentalities are immune from suit in the state and federal courts of the United States, with certain defined exceptions. 28 U.S.C. §§ 1604, 1605. In the absence of an international agreement to the contrary, jurisdiction may be exercised only on occasion of an exception delineated in the Act.

 Plaintiff seeks to defeat the sovereign immunity bar with the exceptions listed in § 1605(a)(2):

 
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case -- . . .
 
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the ...

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